Complacent savers should learn from BHS and Tata Steel pensions crises

8th June 2016

Those people who are complacent about their savings should consider the pensions crises occurring at BHS and Tata Steel as a "wake-up call", deVere Group's CEO Nigel Green said.

Mr Green's comments come at a time when BHS finds itself on the verge of collapse and with huge pension burdens. Sir Philip Green, who owned the retailer for 15 years, is due to be grilled by MPs next week over the situation.

In parallel with the BHS collapse, Tata Steel has itself proposed the unprecedented move to switch from the RPI inflation index to the lower CPI measure for its members’ future pension increases.

Citing these as "alarming risks that burgeoning deficits pose to [people’s] retirement funds", Green reiterated his stance that the laws surrounding DB pension provision are outdated and no longer of an acceptable standard.

“In short, they are not fit for purpose in today’s world,” he said. “However, unfortunately, the myth that final salary schemes are guaranteed is alive and well.

Mr Green explained that more than 50% of new or potential clients fail to fully appreciate how the pension deficit crisis could have devastating financial consequences for their retirement. The harsh reality, he continued, is that many final salary schemes are on the edge of an abyss.

“Many firms can no longer afford these expensive schemes with defined-benefits retirement packages that have pensions linked to their earnings and employment. There’s simply not enough cash in their pots to meet future obligations. Too many schemes have become simply unsustainable.”

“Sadly, it is unlikely that there will be a monumental step away from the abyss for many of these schemes.”

“There is, of course, the Pension Protection Fund, the State-backed rescue fund - but this is not guaranteed by the government and the level of benefits payable by the PPF are typically far lower than what savers would expect to get from their firm’s scheme. Also, it is the responsibility of firms to fund the PPF, which puts more pressure on their own scheme.”

The deVere CEO concludes: “With the pensions black hole becoming ever bigger, as depressingly highlighted by these recent high profile cases, those with final salary schemes should seek independent financial advice on how they might be able to mitigate the risks that their scheme could face.

“There are usually steps that can be taken, but I would suggest that this retirement planning revision needs to be done sooner rather than later.

“It is better to ask the tough questions now rather than having to ‘downsize’ your retirement ambitions later.”

NOTE
deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients. It has a network of more than 70 offices across the world, over 80,000 clients and $10bn under advisement.
www.devere-group.com